By Peter Rudegeair
Feb 25 Bank of America Corp may have a
new mortgage problem on its plate, saying on Tuesday that
federal investigators are looking into whether the bank violated
requirements of a U.S. government housing program.
The second-largest U.S. bank said the civil division of the
U.S. Attorney's Office for the Eastern District of New York in
Brooklyn is investigating Bank of America's compliance with the
rules of the Federal Housing Administration's Direct Endorsement
Program. Bank of America made the disclosure in its annual
report filed on Tuesday with the U.S. Securities and Exchange
Spokesmen for Bank of America and U.S. Attorney Loretta
Lynch declined to provide additional details on the probe.
The Charlotte, North Carolina-based bank also said in the
filing that government authorities in North America, Europe and
Asia are investigating the bank's conduct and practices in
foreign-exchange markets as part of a broader industry inquiry.
The FHA program has been at the center of cases brought by
U.S. Attorney Preet Bharara, who is Lynch's counterpart in
Manhattan. In 2012, Citigroup Inc agreed to pay $158.3
million and Deutsche Bank AG agreed to pay $202.3
million to settle cases, while a third case is pending against
Wells Fargo & Co.
Under the program, mortgage lenders such as Bank of America
are given the authority to approve home loans that the federal
government then insures without further review. If the mortgage
defaults and it is later determined that the lender did not
follow FHA underwriting standards, the FHA can demand to be
reimbursed for any losses.
JPMorgan Chase & Co agreed in early February to pay
$614 million to settle claims that it defrauded the FHA and the
Department of Veterans Affairs by making sub-standard mortgage
In February 2012, Bank of America agreed to $1 billion in
payments to the federal government to settle separate claims
that its Countrywide home loan subsidiary made FHA-insured
mortgages to unqualified borrowers. That settlement covered
loans made before April 30, 2009.
Bank of America raised its estimate of overall litigation
costs to as much as $6.1 billion above what it has already set
aside, up from an estimate of $5.1 billion at the end of the
third quarter, according to its SEC filing.
GETTING A CAPITAL BOOST
The bank also disclosed in the filing an agreement with
Warren Buffett's Berkshire Hathaway Inc that could give
it an additional $2.9 billion in capital.
Berkshire acquired a special class of preferred stock in
Bank of America in 2011 as part of a larger $5 billion
investment. Under international regulatory capital rules that
U.S. regulators finalized in 2013, that preferred stock would
not have counted toward the bank's capital ratios.
But in exchange for agreeing not to redeem the preferred
stock for five years, Berkshire agreed to change the terms of
the investment so that it counts for Tier 1 capital purposes.
The new terms include a fixed annual dividend of 6 percent and
the removal of a provision that would have let Berkshire receive
additional payments if the bank missed a dividend.
The deal is subject to shareholder approval. An amendment
will be put to a vote at the bank's annual meeting in May.